Angelo Martino just purchased 700 shares of AT & E at 62.5 dollars, and he has d
ID: 2755125 • Letter: A
Question
Angelo Martino just purchased 700 shares of AT & E at 62.5 dollars, and he has decided to write covered calls against these stocks. Accordingly, he sells 7 AT & E calls at their current market price of 6.29 dollars. The calls have 3 months to expiration and carry a strike price of 64.50 dollars. The stock pays a quarterly dividend of 0.77 dollars a share(The next dividend to be paid in about a month). Determine the total profit and holding period return Angelo will generate if the stock rises 64.50 dollars a share by the expiration date the calls. What happens to Angelo's profit if the price of the stock rises to more than 64.50 dollars a share? Does this covered call position offer any protection against a drop in the price of the stock? Explain If the stock rises to 64.50 dollars by the expiration date on the calls, the total profit idExplanation / Answer
a. Profit earned by Angelo on expiration date if the stock value rises to $ 64.50 a share will be ($ 64.50 - $ 62.05 + $ 0.77) X 700 shares = 2254 $ b. In case the price of the stock rises to more than $ 64.50 per share, Angelo's profit and return consequently increases. c. The covered call position offers a protection of $ 6.29 against the drop in the price of the stock. Since Angelo will be selling 7 AT & T Calls at a confirmed current market price of $ 6.29, a return of 44.03 $ is confirmed thereagainst.